In the past decade the world has been embroiled in an upheaval in power and influence comparable to anything in recorded history-from the splitting of the Roman empire in 364 to the final fall of the Holy Roman empire in 1918. British foreign policy has not yet fully acknowledged this upheaval, let alone reacted in a suitable manner to the new realities.
That this should be the case is, however, brushed aside by many of the opinion pollsters and public relations experts who advise politicians on how to win support. These people repeat the view that the British public is not interested in foreign policy. This assumption is based, in turn, on surveys asking people which item they regard as most important-education, health, house prices and so on. Foreign policy always comes at the bottom of the list.
But foreign policy, most broadly defined, is central to people's sense of national identity, and to an understanding of their nation's purpose, role and values. A nation, and an administration, without a realistic and well articulated foreign policy, which explains the bewildering present and illuminates the uncertain future, is rudderless.
Confront people with a fuzzy, all-things-to-all-men picture of their country's activities in the world, and they will turn crossly to every other domestic issue. By contrast, a serious and persuasive articulation of the nation's unique role in unfamiliar conditions provides the bedrock for all judgements about the state of the world, the country, the locality, even the family.
Crude nationalism will not fill the British foreign policy void, nor will woolly internationalism. Nor will a role as just another European state (as described in Simon Head's article in the August/ September Prospect ); nor yet a position as America's loyal little cousin.
How can British foreign policy find its place? Let us first list the components of today's new landscape. First, although still only dimly perceived, is the shift in power, both economic and political, away from the G7 countries towards the rising nations of Asia and Latin America. Old categories such as north and south, first and third world, are largely meaningless. Second, and intertwined with this, the cold war has ended, the Soviet Union has dissolved and attention has switched to the nations of central Asia, while an uncertain US blinks in the cold war aftermath, half inclined to unilateralism and half wondering to which other countries or multilateral institutions to turn for support. Third, Europe's centre of gravity has shifted eastward following the arrival of the new democracies of east and central Europe and the unification of Germany. This has been reinforced by western Europe's fading economic performance and by the attempt to push the EU from economic to ever closer political integration. Fourth, there has been the securitisation of world wealth, which gives new impetus to capital formation and development, and replaces old preoccupations with trade, trade blocs and protectionism. The power of international capital markets has redrawn the limits of national action, further downgraded the effectiveness of traditional policy instruments and accelerated the wealth accumulation of the developing world. Fifth, the new threats to world peace come from territorial fragmentation, ethnic rivalries, internationally organised crime, rogue regimes with their hands on horrifyingly simple and ever cheaper, and more accessible, weapons of mass destruction, and from an unpredictable China. The next war could begin not in Europe but in northeast or central Asia.
A decade ago none of the above applied. Asia had taken off but no one really understood just what ten years of supergrowth, or the injection of private investment on a large scale, would do to the balance of the world economy. The Soviet empire was undertaking faltering reform but few predicted the disintegration of the union, the return of the oil centre of the world to the trans-Caucasus and Caspian regions, and the re-emergence of Turkey and Iran at the centre of a new and dangerous power play. Soviet might was the enemy and Britain's defences continued to rest primarily on Nato. Few had heard of Bosnia, let alone Chechnya. Chinese expansionism was a distant worry. The end of apartheid seemed far away and peace negotiations between Israel and the Arabs even further. The EU, then the world's most successful and dynamic trading bloc, was the main focus of British foreign policy, it being axiomatic that Britain's future lay in Europe.
A decade ago world economic policymakers were concerned with trade and tariffs, with aid and north-south imbalance, with growth targets and the vast accumulated government debt arising from the borrowing and lending excesses of the 1970s. No one dreamed that the creation of wealth in the developing world would dwarf all development aid flows.
Nor was it envisaged that knowledge-intensive services-from education and management training to design, to financial services, to audiovisual services to language teaching, would reach such significance in world trade or become, when added to all the other "invisible" earnings, the very visible major source of Britain's foreign income. Instead, the talk in those days was (and still is in unreconstructed circles) all about Britain's weak manufacturing base, a concept now rendered meaningless by the interweaving of information and physical production.
how can our interests be protected in this new world? Our direct interests are to defend our territory, safeguard our world trade and protect our assets around the globe. Such interests are supplemented by less direct ones such as helping to keep world peace. A successful foreign policy has to show how all these areas, from the remote, such as troops in Bosnia or Cambodia, to the immediate, such as the protection of our overseas income-earning assets, or our export orders, interweave into a common theme.
The Financial Times estimates that the output of the emerging economies (southeast Asia, northeast Asia excluding Japan, India, the middle east, Latin America, Africa, central and eastern Europe) will overtake that of the misnamed G10 group by 2003. That suggests that our policy priorities ought to be about evenly divided between the emerging markets and those in the already industrialised world. But that is far from being the case at present. Not only is the bulk of our defence programme still concentrated on Nato, which remains concerned exclusively with the European theatre, but our diplomatic and commercial-cum-promotional resources remain overwhelmingly focused on the EU and the US.
The argument in support of this is that these are still our main export destinations. But there seems to be a misunderstanding about the character of our overall external economic interests, of which traditional exports are only a part, and exports of manufactures a still smaller part.
Not only are the emergent nations beginning to be tomorrow's big markets and growth areas. Their type of growth, and the way the British economy can relate to their development, is also beginning to be quite different. The world has to be seen in terms not just of export markets, but as a system of networks of investment, trade and knowledge.
The overseas Chinese, who largely run the southeast Asian wealth creating machine, are one such network. Latin America's Mercosur co-operation organisation is another. Asia Pacific Economic Co-operation (Apec) is a third and the Association of Southeast Asian Nations (Asean) grouping a fourth. A fifth is the central and eastern Europe grouping. At the start of their new freedom these countries wanted no more association with each other and looked for separate links to the west, but they are now relinking through the free market. A sixth network-not yet fully emerged, thus even more welcome to a nation as opportunistic as Britain has traditionally been-is the Black Sea forum grouping, stretching from Romania and Bulgaria right into the heart of what was Soviet Asia.
Capital flows are now the central feature of the relationship with all these networks. A gigantic global wealth creation machine has come into being. Its participants are no longer just the old mixture of multinational corporations and the investing middle classes in the richer countries. John Edmunds of consultants Arthur D Little estimates (Foreign Policy, September 1996) that 2.5 billion people, many of them within the emerging or developing nations, are now in the savings and investment class and are potential customers for investment-grade securities for their savings, pensions, health care and so on. Because many of the developing countries lacked the resources to create social services and welfare systems, they have simply bypassed the glories and latterly the burdens of universal welfare provision which have come near to bankrupting western Europe.
Instead, as the century ends, they are moving straight on to private sector financed welfare systems fit for the 21st century and thus creating huge new funds in search of a stable investment home. This explains why several developing countries have not only attracted back their own citizens' capital for development but have become net capital exporters.
The interests of a nation such as Britain, as a significant capital raiser (through the London capital markets), capital exporter and capital investment owner are thus to ensure that this new economic machine works well. It is, too, a fundamental British interest to ensure that British overseas direct investment expands and markets its outputs efficiently, whether of goods or services. The Japanese have a term for this part of their national interest which they call "overseas production." No such term exists in the Whitehall repertoire or in official British statistics. Overseas dividends or profits remitted to home corporations from foreign investments are computed. But the geometrical growth of output from British owned, but overseas located plants and enterprises does not show up in these figures.
Not only does this give a poor picture of Britain's interests, it also severely distorts the overall picture of Britain's performance, because locally produced goods or services may well supplant imports from Britain. Thus a country which may be generating significant returns for Britain may register in the conventional figures as one with a quite small bilateral trade relationship. Foreign policy attention is consequently, but erroneously, minimal.
But even if we were to stick to the conventional measures of trade and capital flows, the case for a switch of emphasis away from western Europe would be increasingly strong. Taking "visibles" and "invisibles" together (both increasingly blurred categories), 60 per cent of British trade is now outside the EU. In the past decade more than three quarters of Britain's direct and portfolio investment overseas has gone outside the EU. If one excludes the Netherlands, which is more a conduit than a destination for direct investment, only 14 per cent of Britain's total earnings from direct investment are generated from within the EU. These bald figures suggest a picture of Britain's present and future interests clearly at odds with the central tenet of British foreign policy in the 1980s that, in the US management patois, "Europe is the only game in town."
But now set these figures and trends against the scene described earlier of emerging economies and British "overseas production" piling up-and what appears? It turns out that our interests are just as much, or maybe soon even more, in Asia, Latin America, the US, eastern and central Europe and Africa as in the EU region. Thus in reviewing the spread of our resources devoted to the protection and projection of Britain's interests, a pattern very different from the Europe-dominated one of either the cold war period or its immediate aftermath needs to be developed. The pattern needs to be revised both geographically and functionally. Cultural diplomacy, commercial door-opening and opportunity seizing, back-up services for would-be inward investors-all these assume much greater importance in the scheme of promotion of British affairs.
Similarly, if expert services rather than physical products are to be at the centre of world commerce, the emphasis needs to be on building up Britain-friendly attitudes in the recipient countries. Here the British have two big advantages: the worldwide desire to learn English, the world's main business language, challenged only by Mandarin Chinese and Spanish, and the existence of a remarkable transregional network of warm cultural and business ties in the form of the Commonwealth.
Exploiting these advantages through our various agencies of commercial and cultural promotion such as the British Council, the BBC World Service and the commercial activity of the British foreign service, becomes a central policy priority. One would expect to see the whole emphasis of policy shifted towards encouragement of every kind of scholastic and cultural contact with the emerging markets, towards maximising our membership of the Commonwealth network, towards all-out encouragement of English language teaching around the world, towards every kind of political, defence and diplomatic contact with these newly rich societies. One would expect to see, too, the most vigorous reactivation of all the pro-British sentiments around the world, which lie, like a great unused and abundant reservoir, just below the surface of international relations throughout Asia, Africa, Latin America and the new democracies of ex-communist Europe.
Yet the current pattern of spending on Britain's external affairs reflects none of this. Alongside a defence budget of ?29 billion we have a budget of ?1.4 billion for the total diplomatic effort (1995-96, due to be cut to ?1 billion by 1998-99), while overseas aid and technical assistance receives ?2.3 billion, plus ?178m for the BBC World Service and ?101m for the British Council. All are facing drastic further cuts and the British Council in particular is now organised on an embarrassing shoe-string even in the most promising markets and pro-British environments, such as Brazil or Chile. In the coming year, spending on British overseas diplomacy will be at half the French level and one third the German level. The case for re-orientation of the budget has not reached the British Treasury.
Defenders of the British defence budget will argue that they are already squeezed to the bone and can be cut no more. Yet there has to be something wrong in a system that can commit ?16 billion to the new Euro-fighter (at ?68m per aircraft) and yet slices a crippling ?40m over three years off the cultural diplomacy budget, or ?82m a year off the overall diplomatic budget. The National Audit Office estimates that for every extra pound spent on commercial services and activities in British embassies in southeast Asia between 1993 and 1995, a return of ?77 in extra business was generated.
This is not the only imbalance. Expenditure on the EU runs at ?3 billion plus (net), expenditure on the Commonwealth at around ?36m. In the Foreign Office's 1996 list of foreign policy objectives, Europe and its problems come at the top of the list. The word Commonwealth, incredibly, only appears at item seven in the mission statement.
what should we be doing? First, we have to settle our relationships with the rest of Europe. This is not the place to say exactly how, but the partnership of nations theme, as set out in the government White Paper, strikes the right balance. That balance will have to be maintained against the pressures of those federalists who want to upset it in the salons of Brussels, Bonn or Paris, or, for that matter, in chattering class London. It ought certainly to be possible to maintain the wait-and-see position on the risky single currency project, and indeed make a virtue of it by being within (through close monetary co-operation), but not part of, the single currency zone. It ought also to be possible to structure close co-operation on common foreign policy issues without being sucked into the more rigid institutional plans for a single European foreign policy with a single voice around the world which ambitious federalists seek.
Second, Britain should be leading in the reconstruction of world institutions. The permanent five membership pattern in the UN security council is out of date. The G7 is now an anachronism. The misnamed G10 can no longer exclude the newly rich world. The Bretton Woods institutions need to adjust to the new realities of international finance. The whole doctrine of aid for development needs revising in the light of the fact that the main engines of development are now private investment flows.
Third, more attention, and money, should be devoted to Commonwealth links as well as links with the Latin Americans, the east Europeans, the southeast and central Asians and the Chinese. Our links with Japan are very good-the one area where even the Treasury has been unable to stop both public sector officials and private enterprise building up a real global partnership.
Fourth, domestic economic and industrial policy should seek to strengthen the sectors of the British economy which are set to perform most profitably in the new world conditions. At the head of these come the financial services sector-which now leads the world and offers a capital raising machine which is more efficient than any other. But the new export industries such as educational training, management training, accountancy and language teaching, research services, the audiovisual industries, transport technology, and other information-based specialist services also need encouragement and support which they are not getting.
Finally, British policymakers, think tanks and statisticians need to update their categories. The "visible" versus "invisible" compartmentalisation is out of date. Every manufacture is also a sequential chain or bundle of services, from basic research to marketing and after sales. Further, the statistics collectors need to understand the concept of, and then measure, overseas production, so as to be able to provide a true picture of Britain's interests and economic power.
The British may be islanders but they are not insular. The same nation which built and then unwound a huge empire, and yet left the imperial stage with a high stock of international goodwill, is still here. Its businessmen and women are already marching. Its political leaders, and especially those who shape our foreign policy, should fall in step.
